David Hargreaves sees obvious potential conflicts of interest and purpose emerging within the so-called housing and urban development authority

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By David Hargreaves

So, welcome to the new housing and urban development authority – or shall I call it Housing New Zealand, The Reboot?

Maybe I missed something completely, but was anybody else surprised that the so-called housing commission (as of last year), which became the so-called housing and urban development authority (earlier this year) has finally ended up including in its midst, holus bolus, Housing New Zealand?

That means the Government’s efforts to ramp up the building of affordable housing through KiwiBuild will now sit alongside and within the organisation managing its state housing portfolio and social housing programme.

After the Saturday announcement of the ‘new’ authority, the Government released a wealth of weighty background information and Cabinet papers going back to December last year and charting the evolution of the proposals, starting from the original housing commission idea.

I have suffered brain ache so that you don’t have to in going through all this stuff on your behalf, and would commend to you as the nub of the whole thing this Cabinet paper from Housing and Urban Development Minister Phil Twyford that lays his thinking out. Look, do have a read, it’s very easily digestible and informative.

When I saw that the ‘new’ authority was going to in large part involve re-badging the ‘old’ Housing New Zealand, I had a lot of immediate reservations. Phil Twyford seemingly did too and I can do no better than quote at this point from his own paper:

I am aware that a fully integrated new entity would have multiple strategic focuses, and a wide scope of operations. This could increase the potential for future conflict between the entity’s urban development and public housing roles, including:

the potential for revenues (both IRRS and revenue from land sales) to be redirected from public housing to urban development activities

the potential for private sector development risks to be transferred onto the public housing balance sheet

the risk of significant disruption for HNZ’s 1,000 current employees and more than 180,000 tenants

the potential for misalignment between public housing and urban development objectives

the risk of one function being prioritised over another (e.g. weighting decisions in favour of development outcomes rather than tenant welfare)

the risk of contagion from one function to another — development is inherently risky, and a major financial failure could impact the public housing function.

He then goes on to say:

A fully integrated new entity will need to have governance and accountability arrangements that provide integrated governance and risk management for the entity. While these arrangements will add complexity, I am confident that careful design will ensure an appropriate strategic focus on public housing is maintained and that risks like those identified above are adequately mitigated. The social objectives that Cabinet has agreed for HNZ will still apply to the new entity.

The last comment about ‘social objectives’ is interesting because it I think it really gets to the heart of the potential conflict within the new supercharged Housing New Zealand.

We’ve now got the same organisation on the one hand promoting KiwiBuild and getting people into their own homes, but on the other getting people into state homes. Commercial objectives versus social objectives. There’s very different philosophies there and not necessarily compatible at all.

In his Cabinet paper Twyford says the other option he had considered for the development authority was separating the land development operations from HNZ and merging these with the KiwiBuild Unit to form the new authority.

YES! That’s what he should have done! Absolutely. And that’s what I expected.

Twyford explains his reasons against do this, thus: “While this semi-integrated entity would have a clear strategic focus on urban development, and more straight-forward governance and accountability arrangements, it would result in development capability across government being split.” There are other reasons given as well. But to my mind the reasons against don’t outweigh the reasons for – and certainly not when compared with what the Government’s decided to go for.

They should have gone with the new, completely new, separate, organisation. Start completely fresh.

Show us the money

What I suspect is really going on in the background here is there is not enough money. I think that’s the unspoken driver of all this. At the moment Twyford has his $2 billion (not enough) for KiwiBuild, plus $100 million to start the ‘new’ authority. I would say $100 million to start a completely new operation is not much at all. So, he’s going to base the new authority on the old HNZ.

Twyford’s Cabinet paper refers a fair bit to funding. And clearly by having the new entity styled as a Crown Agent, there will be a lot of freedom for it to raise its own money (as HNZ does now) and also to undertake arrangements with private entities.

My concern is we could see quite a bit of ‘off-balance sheet’ borrowing occurring here. We already know that the ‘off-the-plans’ part of KiwiBuild is going to involve the taxpayer on behalf of the Government taking on underwriting risk.

Transparency, or lack of, could become a big problem.

I think the overwhelming public desire to see the country’s housing shortage overcome and to see young New Zealanders able to buy their own homes is sufficient that the Government could have made the case for relaxing its financial responsibility rules – which are looking more and more like a straitjacket.

There would have been an overwhelmingly positive case for saying to the people of New Zealand: ‘Look, this is a bit harder than we thought, it’s going to take more money, we are going to borrow X billion more dollars and make a real good job of this.’

That would be open and transparent. I think there is a real risk here that the New Zealand taxpayer gets far more exposed to potential losses than we are going to be made aware of – possibly till too late.

KiwiStateHouseBuild?

Another point here is that even before the announcement that the Government’s social and development housing functions were going to be wrapped into one in this ‘new’ agency, I had the suspicion that if KiwiBuild houses for whatever reason didn’t get the buyer interest expected (and there are some ominous signs there with the low numbers of pre-qualified buyers), that the Government might just simply start rebadging and repurposing them as state houses.

Clearly there’s a much bigger chance of that and it becomes a much easier exercise to do that if everything is under, as it were, one roof.

But is that what we want?

New houses that end up as state houses and young people becoming not young house buyers but young state house tenants. Is that what we want? It’s a risk and surely its the very thing that the KiwiBuild initiative was supposed to mitigate against.

Now, people will accuse me of being unduly negative, I’m sure.

Twyford’s talking up the new supercharged Housing NZ as a “joined up one-stop shop”, which is “tooled up” for the purpose.

No doubt there can be a lot of attractiveness in the idea of the so-called one-stop shop.

But I think the problem that emerges is when there are potential big conflicts between the functions within that one-stop shop.

And clearly the difference between providing state housing and providing commercial housing is a big conflict. It’s two separate mindsets that you are trying to bring together to coexist. And bear in mind that presumably large portions of the staff of this ‘new’ agency will almost certainly it seems come from the ‘old’ HNZ. Good people, I’m sure. But will they have the same mindset of someone, perhaps from the private sector, who is commercially, rather than socially-driven?

The idea is good …but

The idea of a development agency that can cut through the red tape that is the RMA and that can over-ride the local councils is I think commendable.

But it should have been separate. It should have been separate.

I think the ‘old’ HNZ will bog down the ‘new’ development agency operations. That’s certainly the risk.

I hope there may yet be chance for the Government to reconsider. The idea of an all-new urban development authority with wide-ranging powers is terrific.

So, go on. Borrow some serious money – a few billion – and set up a new separate development entity that is completely commercially focused and separate from the social objectives of HNZ. I would applaud that.

However, if the Government carries on as currently intended then I think In this instance ‘one-stop-shop’ is going to mean trying to be all things to all people. And that doesn’t normally work well. Jack of all trades, master of none.